I was sitting at work last Monday at 11 when an announcement came over the building loudspeaker about Remembrance Day and to tell us to observe the traditional minutes silence. As I watched all the young Chinese people in the office standing round looking perplexed, for the first time in a long time, I too began to wonder, what is this all about? What exactly are we remembering here? And what relevance does this have in a country that is increasingly multi-cultural and where the vast majority of people have not experienced the ravages of war?
Like a lot of people of my generation, fortunately I have had no direct experience of war either, but I have had a degree of exposure to its horrendous after-effects. Growing up in country Queensland, I still have vivid childhood memories of the elderly World War 1 veterans shuffling around town, often missing limbs or eyes, and harbouring god knows what horrible mental demons. I also had a grandfather serve in World War 1 and fortunately he made it back safely or I wouldn't be sitting here typing this. Nonetheless, what he saw during his time serving convinced him that God couldn't possibly exist, a pretty dramatic turn of events given he came from a staunch Irish Catholic family boasting an Archbishop of Brisbane and a Mother Superior. More recently, I looked after a building occupied by the Department of Veteran's Affairs and had to help deal with the fallout from an incident where a Vietnam veteran turned up to reception, pistol fully loaded and blew his brains out in front of about 20 customers and staff. It was just simply awful, and a hideous reminder of the damage war can do to people.
This is part of the reason I have become irritated in recent years with how overblown and trivialised some war commemorations have become. In days gone by the ANZAC Day parades were appropriately understated and solemn affairs, but in the last 20 or years they have taken on more of a carnival type atmosphere with everyone rushing to take "selfies" next to the Shrine of Remembrance or turn up at the Dawn Service after a night on the tiles. Increasingly too they have been seized on by politicians to spread patronising and jingoistic messages about Australia and what a great sacrifice our servicemen and women made defending our country. Which, of course, is mostly a load of rubbish. War has never been some glorious patriotic pursuit as politicians and the movies would have you believe, it's usually a fight about resources, be that territory, oil, access to waterways or something else. Also the long-term legacy is seldom peace, but rather a heap of sad and costly slaughter inflicted on an entire generation of young people.
World War 1 is a prime example. It had been building up for years because of squabbles by the European powers over the carve up of Africa, not because of the sudden rise of a malign rogue power everyone needed to defend against. 4 years and 40 million casualties later, it ended in a stalemate, but in spite of that, the "victors" decided to impose such crippling sanctions on Germany that it led to the rise of Nazism, and another 80 million casualties 25 years on.
Does anyone also really think that the troubles in the Middle East are about some noble struggle of good against evil? Of course not, it's because a large proportion of the world's oil supplies are situated there and everyone wants a piece of the action. As for Australia's involvement specifically, the only time we've ever had to defend ourselves is in World War 2, yet somehow our governments think its a good idea to charge into conflicts like places like Vietnam and Iraq that never threatened Australia, despite the enormous financial and social cost of re-settling a heap of messed up servicemen and women when they get home.
The ironic thing is that while Remembrance Day commemorations have been scaled up in recent years, the world is increasingly forgetting the lessons of past conflicts - which kind of defeats the purpose of holding them in the first place. Instead of constructively trying to understand and engage with other countries as a means of heading off conflict, governments everywhere are increasingly descending into misguided nationalist fervour and doing things like withholding aid or imposing trade sanctions, on the justification that "we have to come first". Before they go and dump on other countries, sometimes their leaders would do well for them to have a look at how that played out for the Allies after World War 1 or more recently, how hostile Russia has become again today after the west shut them out of Europe at the end of the Cold War.
Also instead of poncing about laying wreaths on different monuments, political leaders should be making sure there is community education about the realities of warfare and why days like ANZAC Day need to be about sombre reflection and not just having a day off at the footy. When people don't properly understand history, it is doomed to repeat itself. And when that happens, we will have a whole new set of conflicts to commemorate, and a whole new generation of screwed up young people to take care of.
17 November 2019
27 October 2019
De-politicising Policy
In recent weeks, I've been watching the climate protests and the non-response by the government with a kind of resigned weariness. It frustrates the bejesus out of me that people on both sides get so worked up politically about an issue which is really a question of science, and should therefore be left to scientists and other experts to deal with.
I genuinely don't understand what people hope to gain by blocking off streets in the CBD and shouting a lot outside the Victorian parliament. Raising awareness of the issue? I hardly think it's possible to raise it any more seeing it's all that media on both sides of the divide ever seem to talk about. All this sort of protest seems to achieve is to provide ammunition to Fox News who want to paint anyone who thinks action should be taken on climate change as rabid socialists who want to destroy the economy. Which of course is patently untrue.
I generally try and avoid getting into discussions about climate change, because I find when I try and adopt a rational and logical approach to the issue, I either get shouted down by zealots on the right who think the whole thing is a UN conspiracy, or by zealots on the left who want an immediate end to coal mining and air travel. There's no point getting into an argument with someone whose position on something is based on faith and emotion instead of reason. No matter how many times you patiently explain that 2 + 2 equals 4, if someone insists while banging the table that it equals 3 or 5, it's just better to nod politely, smile nervously and move on.
It did however get me thinking how difficult it must be for governments to formulate effective policy on this or any other important matter right at the moment. That's not to say that governments aren't culpable for failing to provide leadership and vision - they are - but at the same time it is a tough ask to govern a populace that has become so polarised and has generally taken leave of its senses. However, there may be a way for governments to work around the problem and enable them to implement their policy agenda, and that is by outsourcing the more politically charged areas to independent government authorities or tribunals.
This isn't a new idea of course, but when its implemented judiciously, it can be quite effective. Three obvious examples come to mind.
The first is town planning. Ordinarily this is the preserve of local councils, but when it became apparent that local town planners would invariably go to water when faced with hordes of strident NIMBYs and reject otherwise eminently sensible development proposals, the state governments established independent tribunals who would be empowered to make the final determination on planning applications. This of course neutralised most of the NIMBYs whose dedication to the cause didn't go so far as spending money in court, so as a result developers can now be reasonably confident that they will get an outcome that sits within the planning guidelines - even if it takes longer than it should.
The second is the Reserve Bank of Australia being made independent of the government and being granted the power to determine monetary policy. Decoupling decisions on interest rates from the political process has proven a masterstroke and is one of the key reasons why Australia has enjoyed 28 years without a recession and avoided the extreme boom-bust cycles of the 1970s and 1980s. As a result, its now hard to make any case anywhere in the western world for this power being returned to the government. Could you just imagine what would happen if someone like Donald Trump had control over interest rate settings? It would be an unmitigated disaster.
The third is more local in nature, but nonetheless one which proved a great success and it was the Queensland Government setting up an authority to oversee the 1988 Expo. Headed by Llew Edwards, the authority was given sweeping powers to acquire land and generally do whatever else it needed in order to make sure the site was ready on time, and thereafter, operate the site during the 6 months of the event. As someone who lived in Brisbane at the time, I can testify that the Expo was a huge success and was instrumental in transforming the city from being a poor cousin of Melbourne and Sydney to being another landmark Australian international city. However without the ability to bypass the usual problems of dealing with Parliament by setting up the authority it's doubtful that the site would have been ready on time, or if it had, it would invariably have been compromised.
You can't help but think what a better outcome we would have had on energy policy if the government had just said, "you know what, this NEG thing is just too hard, let's just set up an authority". The problem with leaving it in the government's hands was that instead of it being about the policy itself - which no-one with a balanced point of view could say was objectionable - it became about Abbott, Dutton and the other loony right faction members wanting to knife Turnbull, and about the Labor state governments not wanting to agree to a Coalition proposal. That, despite the NEG now becoming part of Labor policy !
On the other hand, if the policy formulation was outsourced to an independent body, not only would you have been able to get people who knew what they were talking about involved in the process, but you would strip out most of the politics and put the focus on nutting out the different issues. It's one thing for a Labor premier to take potshots at Josh Frydenberg but entirely another for them to do the same when they are dealing with a respected businessperson like Gail Kelly or Michael Chaney. You also have to wonder if the British would not just have been better off empowering a Brexit authority to go work out the details with the European Union instead of trying to work through a prolonged and divisive Parliamentary process that shows no signs of ending any time soon.
You could argue that doing this sort of thing takes power away from the government (and therefore, notionally, the people) and places it in the hands of unelected officials. But really, in this day and age, will anyone really care? Citizenship education has become so poor in the western world that when Trump tries to ride roughshod over institutions like the Federal Reserve, Congress and the FBI, or Boris Johnson illegally dissolves Parliament, people aren't horrified but actually cheer. Also any academic arguments about the stripping away of democratic process would probably be countered by the much more effective policy outcomes that would result.
It's inevitable that any independent bodies set up by the government will have their detractors and that people will sometimes not like what they do. The Murray Darling Basin Authority is a classic example. However we live in a time where the expressions: "There's no pleasing some people" and "You can't please everyone all of the time" have never been more apt.
Politicians need to recognise this, and if they don't have the gumption or political will to confront opposition head on and get done what needs to be done, then they need to have the self-awareness to recognise this and find another way. They could do a lot worse than engage a bunch of independent people who know what they are doing and can just get on with what they have to without having to explain themselves to Alan Jones or Leigh Sales every other day.
And you know what, the country would probably be a whole lot better off for it.
I genuinely don't understand what people hope to gain by blocking off streets in the CBD and shouting a lot outside the Victorian parliament. Raising awareness of the issue? I hardly think it's possible to raise it any more seeing it's all that media on both sides of the divide ever seem to talk about. All this sort of protest seems to achieve is to provide ammunition to Fox News who want to paint anyone who thinks action should be taken on climate change as rabid socialists who want to destroy the economy. Which of course is patently untrue.
I generally try and avoid getting into discussions about climate change, because I find when I try and adopt a rational and logical approach to the issue, I either get shouted down by zealots on the right who think the whole thing is a UN conspiracy, or by zealots on the left who want an immediate end to coal mining and air travel. There's no point getting into an argument with someone whose position on something is based on faith and emotion instead of reason. No matter how many times you patiently explain that 2 + 2 equals 4, if someone insists while banging the table that it equals 3 or 5, it's just better to nod politely, smile nervously and move on.
It did however get me thinking how difficult it must be for governments to formulate effective policy on this or any other important matter right at the moment. That's not to say that governments aren't culpable for failing to provide leadership and vision - they are - but at the same time it is a tough ask to govern a populace that has become so polarised and has generally taken leave of its senses. However, there may be a way for governments to work around the problem and enable them to implement their policy agenda, and that is by outsourcing the more politically charged areas to independent government authorities or tribunals.
This isn't a new idea of course, but when its implemented judiciously, it can be quite effective. Three obvious examples come to mind.
The first is town planning. Ordinarily this is the preserve of local councils, but when it became apparent that local town planners would invariably go to water when faced with hordes of strident NIMBYs and reject otherwise eminently sensible development proposals, the state governments established independent tribunals who would be empowered to make the final determination on planning applications. This of course neutralised most of the NIMBYs whose dedication to the cause didn't go so far as spending money in court, so as a result developers can now be reasonably confident that they will get an outcome that sits within the planning guidelines - even if it takes longer than it should.
The second is the Reserve Bank of Australia being made independent of the government and being granted the power to determine monetary policy. Decoupling decisions on interest rates from the political process has proven a masterstroke and is one of the key reasons why Australia has enjoyed 28 years without a recession and avoided the extreme boom-bust cycles of the 1970s and 1980s. As a result, its now hard to make any case anywhere in the western world for this power being returned to the government. Could you just imagine what would happen if someone like Donald Trump had control over interest rate settings? It would be an unmitigated disaster.
The third is more local in nature, but nonetheless one which proved a great success and it was the Queensland Government setting up an authority to oversee the 1988 Expo. Headed by Llew Edwards, the authority was given sweeping powers to acquire land and generally do whatever else it needed in order to make sure the site was ready on time, and thereafter, operate the site during the 6 months of the event. As someone who lived in Brisbane at the time, I can testify that the Expo was a huge success and was instrumental in transforming the city from being a poor cousin of Melbourne and Sydney to being another landmark Australian international city. However without the ability to bypass the usual problems of dealing with Parliament by setting up the authority it's doubtful that the site would have been ready on time, or if it had, it would invariably have been compromised.
You can't help but think what a better outcome we would have had on energy policy if the government had just said, "you know what, this NEG thing is just too hard, let's just set up an authority". The problem with leaving it in the government's hands was that instead of it being about the policy itself - which no-one with a balanced point of view could say was objectionable - it became about Abbott, Dutton and the other loony right faction members wanting to knife Turnbull, and about the Labor state governments not wanting to agree to a Coalition proposal. That, despite the NEG now becoming part of Labor policy !
On the other hand, if the policy formulation was outsourced to an independent body, not only would you have been able to get people who knew what they were talking about involved in the process, but you would strip out most of the politics and put the focus on nutting out the different issues. It's one thing for a Labor premier to take potshots at Josh Frydenberg but entirely another for them to do the same when they are dealing with a respected businessperson like Gail Kelly or Michael Chaney. You also have to wonder if the British would not just have been better off empowering a Brexit authority to go work out the details with the European Union instead of trying to work through a prolonged and divisive Parliamentary process that shows no signs of ending any time soon.
You could argue that doing this sort of thing takes power away from the government (and therefore, notionally, the people) and places it in the hands of unelected officials. But really, in this day and age, will anyone really care? Citizenship education has become so poor in the western world that when Trump tries to ride roughshod over institutions like the Federal Reserve, Congress and the FBI, or Boris Johnson illegally dissolves Parliament, people aren't horrified but actually cheer. Also any academic arguments about the stripping away of democratic process would probably be countered by the much more effective policy outcomes that would result.
It's inevitable that any independent bodies set up by the government will have their detractors and that people will sometimes not like what they do. The Murray Darling Basin Authority is a classic example. However we live in a time where the expressions: "There's no pleasing some people" and "You can't please everyone all of the time" have never been more apt.
Politicians need to recognise this, and if they don't have the gumption or political will to confront opposition head on and get done what needs to be done, then they need to have the self-awareness to recognise this and find another way. They could do a lot worse than engage a bunch of independent people who know what they are doing and can just get on with what they have to without having to explain themselves to Alan Jones or Leigh Sales every other day.
And you know what, the country would probably be a whole lot better off for it.
17 August 2019
When Populism Meets Reality
I've been watching events in the USA and the UK with some interest the last couple of weeks, as the consequences of some recent decisions made by those countries have started to manifest themselves.
In the USA, the equities markets have copped a pounding as the Chinese finally grew tired of the Twitter-tariffs and in a move that was clearly calculated to annoy the petulant infant in the White House, let their currency fall below a critical level against the US dollar. This then set off a flight to bonds and widespread predictions of a recession.
Coupled with this are rising tensions in the Middle East. The decision by the US to pull out of the Iran nuclear treaty and impose crippling economic sanctions has had the predictable effect of goading the Iranians into showing their teeth by impounding vessels and blockading a key sea passage. The likelihood of fresh military action is growing daily, somewhat ironic when you consider Trump's aversion to having anything at all to do with that part of the world.
Finally, the latest round of mass shootings and the increasing trend of these attacks being carried out by white supremacists has drawn fresh attention not just on the lack of action on gun control but what effect Trumps's incessant racist tweeting has had on emboldening the perpetrators.
Meanwhile over the Atlantic, the Brexit deadline is fast approaching and with it, the real prospect that the UK will crash out of the EU without an agreement and the 2 year transition period that would have come with it. The mind boggles at what's going to happen at the end of October but I for one won't be going near the place for at least 6 months afterwards. The prospect of waiting another 24 hours at Heathrow to get into the country after enduring a flight of the same duration has absolutely no appeal. There's another irony at play when you consider the Brexiteers' campaign slogan in the context of what's likely to happen shortly post-Brexit, namely Scotland and potentially Northern Ireland leaving the UK. "Taking Back Control"? Hardly. More like, "Spiralling out of Control".
Because that's the problem with decisions based on a populist agenda compared with ones based on careful consideration of the facts and the likely consequences. Eventually this annoying thing called reality gets in the way and bad outcomes that would have been obvious with even a basic level of forward thinking start to happen.
Of course, Trump's decision making has never been guided by any level of strategic planning or careful thought. With very few exceptions, everything he has done in office has been driven either by ignorance or his pet grievances, like the way China conducts business, his admiration for despots like Putin and Kim Jong-Un, his hatred of Iran and more generally, anybody who isn't white. The really scary thing for the USA is that while Trump has absolutely no plan for how to manage the escalating trade dispute with China, you can bet your bottom dollar the Chinese do, and with a centrally controlled economy and a totalitarian government, they have the ability to take measures which could seriously harm the US economy - measures that aren't available to a democratic state like America.
In the UK, running the country you now have the man who Trump, in his typically conceited manner, labelled "Britain-Trump". However, the reality is that Boris Johnson is a very different character to Trump. For a start, it's kind of difficult not to like him even though you really don't want to. While I'm positive it's an act, he has got the daffy, eccentric Britisher shtick down to a T, and the phrase "it takes a lot of intelligence to come across that stupid" could have been invented for him. Also unlike Trump, he appears to have a strong sense of civic duty and I think he genuinely cares for and wants to do the right thing by his constituents, rather than just himself.
There is though one important flaw that the two men share - they are both egomaniacs. I've got no doubt whatsoever that Johnson believes he will march into the EU headquarters in Brussels sometime in the next couple of weeks and get them to tear up Theresa May's deal and give him everything he wants.
There's just one problem with that approach: the EU aren't going to. Businesses know that, the financial markets know that (hence why the Pound has been sinking against the Euro and US dollar), and deep down, even his supporters in the Tory party know that, which is why they have been quietly making preparations for what's coming to them on 31 October. I doubt very much that David Cameron foresaw years of potential economic pain and a splintering of the United Kingdom when he unbottled the Brexit genie, but this is now what's going to happen, solely because of a lot of populist grandstanding in the Parliament and poor decision making.
What I find so confounding about populist world leaders is that in just about any other walk of life, they would be recognised for what they are and shown the door pretty quickly. Could you imagine for instance if the board of Apple or Amazon appointed someone with Trump's history of financial malfeasance as CEO? The company's value would dive and the shareholders would be baying for blood.
Similarly, imagine if either Trump or Johnson got appointed as principal of a fancy private girls school. It's hard to see the parents and friends association tolerating a sexual predator who boasts of pussy grabbing and who has a weird physical obsession with his own daughter being put in charge of their kids' education. Action would be taken swiftly to deal with any inappropriate behaviour, and the pressure would not relent until they'd been given the boot.
Yet when it comes to the most important job in the country, people seem to have a limitless tolerance for incompetence and bad behaviour, and any public criticism of it tends to last no more than a day in the media cycle. Richard Nixon must be looking up from Hell and cursing his luck that he wasn't born 45 years later so he could be President in the modern age where the lengthy and sustained investigation which exposed the Watergate scandal would simply never have happened.
Encouragingly, though, there are signs that the natives are getting restless in both countries and that the political leaders might finally about to be held to account for their actions. If you're the sort of person who votes for a pig-ignorant bigot like Trump, it's all well and good to cheer them along when they go poke China with a stick or let you hang onto your private arsenal. However it's only natural that you'll start to think twice about re-electing them when there's a chance that as a direct result of the decisions they make, your house drops 40% in value or you find yourself in a shopping mall confronted by a deranged lunatic wielding an assault rifle.
It's kind of worrying what is going on at the moment, but maybe some of these disasters need to play out as a condition to returning to a more sensible and considered public debate, and to stop leaders doing what's popular with their support base and instead act in the best interests of their countries. And who knows, if governments have enough courage to be honest with their citizens about the challenges they are facing, they might be prepared to put up with some things they disagree with in the short term and let the government focus on securing long-term prosperity.
Which, I'm afraid, won't be able to be done by starting a war in the Middle East, playing tariff "chicken" with China and inadvertently causing a break up of the UK.
In the USA, the equities markets have copped a pounding as the Chinese finally grew tired of the Twitter-tariffs and in a move that was clearly calculated to annoy the petulant infant in the White House, let their currency fall below a critical level against the US dollar. This then set off a flight to bonds and widespread predictions of a recession.
Coupled with this are rising tensions in the Middle East. The decision by the US to pull out of the Iran nuclear treaty and impose crippling economic sanctions has had the predictable effect of goading the Iranians into showing their teeth by impounding vessels and blockading a key sea passage. The likelihood of fresh military action is growing daily, somewhat ironic when you consider Trump's aversion to having anything at all to do with that part of the world.
Finally, the latest round of mass shootings and the increasing trend of these attacks being carried out by white supremacists has drawn fresh attention not just on the lack of action on gun control but what effect Trumps's incessant racist tweeting has had on emboldening the perpetrators.
Meanwhile over the Atlantic, the Brexit deadline is fast approaching and with it, the real prospect that the UK will crash out of the EU without an agreement and the 2 year transition period that would have come with it. The mind boggles at what's going to happen at the end of October but I for one won't be going near the place for at least 6 months afterwards. The prospect of waiting another 24 hours at Heathrow to get into the country after enduring a flight of the same duration has absolutely no appeal. There's another irony at play when you consider the Brexiteers' campaign slogan in the context of what's likely to happen shortly post-Brexit, namely Scotland and potentially Northern Ireland leaving the UK. "Taking Back Control"? Hardly. More like, "Spiralling out of Control".
Because that's the problem with decisions based on a populist agenda compared with ones based on careful consideration of the facts and the likely consequences. Eventually this annoying thing called reality gets in the way and bad outcomes that would have been obvious with even a basic level of forward thinking start to happen.
Of course, Trump's decision making has never been guided by any level of strategic planning or careful thought. With very few exceptions, everything he has done in office has been driven either by ignorance or his pet grievances, like the way China conducts business, his admiration for despots like Putin and Kim Jong-Un, his hatred of Iran and more generally, anybody who isn't white. The really scary thing for the USA is that while Trump has absolutely no plan for how to manage the escalating trade dispute with China, you can bet your bottom dollar the Chinese do, and with a centrally controlled economy and a totalitarian government, they have the ability to take measures which could seriously harm the US economy - measures that aren't available to a democratic state like America.
In the UK, running the country you now have the man who Trump, in his typically conceited manner, labelled "Britain-Trump". However, the reality is that Boris Johnson is a very different character to Trump. For a start, it's kind of difficult not to like him even though you really don't want to. While I'm positive it's an act, he has got the daffy, eccentric Britisher shtick down to a T, and the phrase "it takes a lot of intelligence to come across that stupid" could have been invented for him. Also unlike Trump, he appears to have a strong sense of civic duty and I think he genuinely cares for and wants to do the right thing by his constituents, rather than just himself.
There is though one important flaw that the two men share - they are both egomaniacs. I've got no doubt whatsoever that Johnson believes he will march into the EU headquarters in Brussels sometime in the next couple of weeks and get them to tear up Theresa May's deal and give him everything he wants.
There's just one problem with that approach: the EU aren't going to. Businesses know that, the financial markets know that (hence why the Pound has been sinking against the Euro and US dollar), and deep down, even his supporters in the Tory party know that, which is why they have been quietly making preparations for what's coming to them on 31 October. I doubt very much that David Cameron foresaw years of potential economic pain and a splintering of the United Kingdom when he unbottled the Brexit genie, but this is now what's going to happen, solely because of a lot of populist grandstanding in the Parliament and poor decision making.
What I find so confounding about populist world leaders is that in just about any other walk of life, they would be recognised for what they are and shown the door pretty quickly. Could you imagine for instance if the board of Apple or Amazon appointed someone with Trump's history of financial malfeasance as CEO? The company's value would dive and the shareholders would be baying for blood.
Similarly, imagine if either Trump or Johnson got appointed as principal of a fancy private girls school. It's hard to see the parents and friends association tolerating a sexual predator who boasts of pussy grabbing and who has a weird physical obsession with his own daughter being put in charge of their kids' education. Action would be taken swiftly to deal with any inappropriate behaviour, and the pressure would not relent until they'd been given the boot.
Yet when it comes to the most important job in the country, people seem to have a limitless tolerance for incompetence and bad behaviour, and any public criticism of it tends to last no more than a day in the media cycle. Richard Nixon must be looking up from Hell and cursing his luck that he wasn't born 45 years later so he could be President in the modern age where the lengthy and sustained investigation which exposed the Watergate scandal would simply never have happened.
Encouragingly, though, there are signs that the natives are getting restless in both countries and that the political leaders might finally about to be held to account for their actions. If you're the sort of person who votes for a pig-ignorant bigot like Trump, it's all well and good to cheer them along when they go poke China with a stick or let you hang onto your private arsenal. However it's only natural that you'll start to think twice about re-electing them when there's a chance that as a direct result of the decisions they make, your house drops 40% in value or you find yourself in a shopping mall confronted by a deranged lunatic wielding an assault rifle.
It's kind of worrying what is going on at the moment, but maybe some of these disasters need to play out as a condition to returning to a more sensible and considered public debate, and to stop leaders doing what's popular with their support base and instead act in the best interests of their countries. And who knows, if governments have enough courage to be honest with their citizens about the challenges they are facing, they might be prepared to put up with some things they disagree with in the short term and let the government focus on securing long-term prosperity.
Which, I'm afraid, won't be able to be done by starting a war in the Middle East, playing tariff "chicken" with China and inadvertently causing a break up of the UK.
04 August 2019
Don't put your Pocket Money in the Bank, Kids
Growing up in the 1970s, saving money was quite the done thing. Children our age were always encouraged to put aside some of our pocket money in a piggy bank (which was usually supplied to schools by the local branch of the government-owned Commonwealth Bank), then when the piggy bank was full of coins, off we would toddle to the bank with our passbook to deposit it in our account.
Leaving aside how quaint this sounds in the modern age, putting your money in the bank wasn't a bad investment back then. With interest rates being around 8-10%, if you could avoid the temptation of spending your money on Popsicles or Wizz-Fizzes, you got paid a reasonable return on your money.
Nowadays, however, it is a very different story. Official interest rates are now at record lows, and the consensus opinion from the experts is that they're heading lower, possibly to zero within a year. I read an article this week that both central bankers and politicians in Australia have been puzzling over the reasons why cutting rates to this level has not had the traditional effect of stimulating economic growth and inflation, despite the unemployment rate being quite low (which of course suggests wages ought to be going up).
I for one was surprised by their confusion, because if you give it a bit of thought, the reasons are pretty obvious. And they're the same reasons why right now I can't see inflation (and therefore interest rates) going up significantly in the next 10 years, and probably longer.
First and foremost, there is the impact of technology. With a few exceptions, technological advances generally create a deflationary effect. To give an example: I remember going down to the record shop in 1979 to buy my first LP - "Discovery" by ELO - and it costing me $8.50. Now, some 40 years later, if I want to buy a digital copy of the same album (as opposed to committing fraud and downloading it for free), I can get it via m3 Millions for $0.96. At this price I seriously recommend you check it out !
The same applies for any other media that is capable of being transmitted electronically via the internet - books, movies, games, newspapers - all these have become significantly less expensive over time as you take out most out most of the links in the supply chain and simply click on a link to download or stream something.
Communications are another good example. I remember calling home from university in the 1980s and having to reverse the call charges because talking on the phone to your parents from 120km away was prohibitively expensive for a student; never mind doing so from overseas. Now of course it's possible to Skype, Whatsapp or SMS to most places in the world for free. Small wonder then that Telstra shares have halved in value in the last 5 years.
The second reason why inflation has stalled has to do with economic globalisation and poorer countries in effect "exporting" deflation to the rest of the world. Leaving aside the moral argument for a moment, but if you are a multinational corporation engaged in manufacturing, where are you going to set up your factories? In a country like Australia with relatively high wages cost and sophisticated employee protection laws, or somewhere like Bangladesh where you can get away with more basic working conditions and paying people low wages? It's no surprise therefore traditional manufacturing has moved away from first world countries and why the cost of clothing and Nike runners hasn't gone up in Myer for ages.
This situation is unlikely to change when there are no end of people in Asia and Africa still living in grinding poverty and who would welcome any sort of job to help lift themselves out of it. Therefore, once the likes of China have become fully industrialised and labour costs start to rise, watch the manufacturers move to the next low cost country in a bid to keep their production cheap.
The other obvious factor behind the torpid growth and inflation figures is the inability of political leaders to implement the necessary structural changes to the economy which might set it up for future growth. It's impossible to contemplate how the major reforms that took place in the 1980s and 1990s and which set Australia up for a golden run of growth will be repeated in the modern, fractured political environment with its emphasis on short-term spin as opposed to long-term strategic planning.
Malcolm Turnbull at least saw the importance of establishing a vibrant technology and innovation sector of the economy similar to what the USA has managed to achieve, but like most initiatives of his government, the proposal became still-born amongst all the Coalition infighting. So unfortunately it's hard to see an immediate future where the economy diversifies significantly away from the historic staples of mining and agriculture. It's part of the reason why the USA's stockmarket keeps hitting fresh record highs while ours has barely got back to 2007 pre-GFC levels.
The RBA is right in a way when it scratches its head about how this can be happening in an environment where the unemployment rate is a fairly low 5.2%. Normally when unemployment gets to this level you would expect upward pressure on wages and increased levels of consumer confidence, which in turn leads to higher spending.
However, when you think about it, the raw number doesn't tell the whole story. Like a lot of things these days, the nature of work has become more transitory and impermanent, not to mention heavily disrupted by technology in a lot of industries. It would be very hard for example to feel confident enough to go invest in a new car when you're employed on a casual basis in a company that publishes phone books or street directories. Or you are up in the Kimberleys driving a mining truck and Rio Tinto's plan to introduce driverless trucks is all over the news.
Ultimately I think the whole notion that humans will be replaced by robots in a whole host of industries is overdone, but nonetheless its true that technology has, in a fairly short space of time, turned a lot of industries that had been happily chugging along for centuries completely on their head. Now there is even talk about automation disrupting the two oldest professions in the world - law and prostitution - so it's understandable in that context that people are anxious about their jobs, and therefore less likely to spend up big than they have been in the past.
So against this local backdrop, and a similarly anaemic economic world outlook which is being hit with "own goals" like Brexit and Trump's idiotic tariff war, what is likely to happen with interest rates? The economy MIGHT kick a bit but it would take some major event like another 2006-style mining boom (unlikely) or a sharp uptick in immigration (very unlikely) to accelerate growth and generate inflation. Given the other factors creating deflation aren't going away any time soon, the far more likely scenario is that things just continue as they are and we just get used to being another developed, low growth, low interest-rate economy like Japan or the EU.
Which is great if you are a young tacker looking to buy lollies because the price isn't going to go up, but not so good if you are a conscientious saver. If I were a child again, I think this time I'd be going for the lollies no matter what my parents said. Sugary delights have got to be more rewarding than earning 0.25% on your money.
Leaving aside how quaint this sounds in the modern age, putting your money in the bank wasn't a bad investment back then. With interest rates being around 8-10%, if you could avoid the temptation of spending your money on Popsicles or Wizz-Fizzes, you got paid a reasonable return on your money.
Nowadays, however, it is a very different story. Official interest rates are now at record lows, and the consensus opinion from the experts is that they're heading lower, possibly to zero within a year. I read an article this week that both central bankers and politicians in Australia have been puzzling over the reasons why cutting rates to this level has not had the traditional effect of stimulating economic growth and inflation, despite the unemployment rate being quite low (which of course suggests wages ought to be going up).
I for one was surprised by their confusion, because if you give it a bit of thought, the reasons are pretty obvious. And they're the same reasons why right now I can't see inflation (and therefore interest rates) going up significantly in the next 10 years, and probably longer.
First and foremost, there is the impact of technology. With a few exceptions, technological advances generally create a deflationary effect. To give an example: I remember going down to the record shop in 1979 to buy my first LP - "Discovery" by ELO - and it costing me $8.50. Now, some 40 years later, if I want to buy a digital copy of the same album (as opposed to committing fraud and downloading it for free), I can get it via m3 Millions for $0.96. At this price I seriously recommend you check it out !
The same applies for any other media that is capable of being transmitted electronically via the internet - books, movies, games, newspapers - all these have become significantly less expensive over time as you take out most out most of the links in the supply chain and simply click on a link to download or stream something.
Communications are another good example. I remember calling home from university in the 1980s and having to reverse the call charges because talking on the phone to your parents from 120km away was prohibitively expensive for a student; never mind doing so from overseas. Now of course it's possible to Skype, Whatsapp or SMS to most places in the world for free. Small wonder then that Telstra shares have halved in value in the last 5 years.
The second reason why inflation has stalled has to do with economic globalisation and poorer countries in effect "exporting" deflation to the rest of the world. Leaving aside the moral argument for a moment, but if you are a multinational corporation engaged in manufacturing, where are you going to set up your factories? In a country like Australia with relatively high wages cost and sophisticated employee protection laws, or somewhere like Bangladesh where you can get away with more basic working conditions and paying people low wages? It's no surprise therefore traditional manufacturing has moved away from first world countries and why the cost of clothing and Nike runners hasn't gone up in Myer for ages.
This situation is unlikely to change when there are no end of people in Asia and Africa still living in grinding poverty and who would welcome any sort of job to help lift themselves out of it. Therefore, once the likes of China have become fully industrialised and labour costs start to rise, watch the manufacturers move to the next low cost country in a bid to keep their production cheap.
The other obvious factor behind the torpid growth and inflation figures is the inability of political leaders to implement the necessary structural changes to the economy which might set it up for future growth. It's impossible to contemplate how the major reforms that took place in the 1980s and 1990s and which set Australia up for a golden run of growth will be repeated in the modern, fractured political environment with its emphasis on short-term spin as opposed to long-term strategic planning.
Malcolm Turnbull at least saw the importance of establishing a vibrant technology and innovation sector of the economy similar to what the USA has managed to achieve, but like most initiatives of his government, the proposal became still-born amongst all the Coalition infighting. So unfortunately it's hard to see an immediate future where the economy diversifies significantly away from the historic staples of mining and agriculture. It's part of the reason why the USA's stockmarket keeps hitting fresh record highs while ours has barely got back to 2007 pre-GFC levels.
The RBA is right in a way when it scratches its head about how this can be happening in an environment where the unemployment rate is a fairly low 5.2%. Normally when unemployment gets to this level you would expect upward pressure on wages and increased levels of consumer confidence, which in turn leads to higher spending.
However, when you think about it, the raw number doesn't tell the whole story. Like a lot of things these days, the nature of work has become more transitory and impermanent, not to mention heavily disrupted by technology in a lot of industries. It would be very hard for example to feel confident enough to go invest in a new car when you're employed on a casual basis in a company that publishes phone books or street directories. Or you are up in the Kimberleys driving a mining truck and Rio Tinto's plan to introduce driverless trucks is all over the news.
Ultimately I think the whole notion that humans will be replaced by robots in a whole host of industries is overdone, but nonetheless its true that technology has, in a fairly short space of time, turned a lot of industries that had been happily chugging along for centuries completely on their head. Now there is even talk about automation disrupting the two oldest professions in the world - law and prostitution - so it's understandable in that context that people are anxious about their jobs, and therefore less likely to spend up big than they have been in the past.
So against this local backdrop, and a similarly anaemic economic world outlook which is being hit with "own goals" like Brexit and Trump's idiotic tariff war, what is likely to happen with interest rates? The economy MIGHT kick a bit but it would take some major event like another 2006-style mining boom (unlikely) or a sharp uptick in immigration (very unlikely) to accelerate growth and generate inflation. Given the other factors creating deflation aren't going away any time soon, the far more likely scenario is that things just continue as they are and we just get used to being another developed, low growth, low interest-rate economy like Japan or the EU.
Which is great if you are a young tacker looking to buy lollies because the price isn't going to go up, but not so good if you are a conscientious saver. If I were a child again, I think this time I'd be going for the lollies no matter what my parents said. Sugary delights have got to be more rewarding than earning 0.25% on your money.
12 May 2019
A Not-So-Super Industry
For the last couple of years, I've been working in a building in the CBD where one of the largest industry superannuation funds has its headquarters. As their office is directly below ours, I've had to share the lift with their staff on a daily basis, and boy, has that proven an annoying experience.
I don't know about the rest of you, but first thing in the morning I don't want to be privy to a banal discussion about whether the shop in the back of the ground floor lobby serves 50c less expensive sandwiches than the one out in Little Collins Street, or whether you should apply for a larger locker in the basement storage area so that you can fit in another set of soiled cycling gear. For heaven's sake, do us all a favour and save it for when you get to the office in 45 seconds time.
At first, I put my irritation down to the lack of consideration these people gave their fellow passengers, but then one day as I was listening to some drivel about whether the quickest way from Hughesdale to Chadstone was via Poath Road or Neerim Road I realised there was another dimension to it. I mean, these people are running one of the largest superannuation funds in the country and managing over $100 billion of employee money, and this is the sort of thing that occupies their minds? Not once in 2 years have I overheard a conversation about things like the global economy, investment markets or interest rates, all of which you would expect from a bunch of people whose job it is to manage other people's money.
However, the lack of nous doesn't surprise me at all given how this particular fund conducted itself during the Global Financial Crisis. When the biggest liquidity crisis in 75 years hit the property markets in 2008 and some of the best real estate in the country was on sale for bargain basement prices, the group was flush with cash and were perfectly poised to make a killing. Instead, it was like they were a rabbit caught in the headlights. Unable or perhaps too frightened to make investment decisions, they made precisely no acquisitions in Australia and watched the market sail by, to the complete and lasting detriment of their clients who would now be sitting on over 100 per cent capital gains in some cases.
This got me thinking more generally about what is structurally wrong with management of superannuation funds, and why that is a deep concern for all of us. Like a lot of other western countries, we are facing an increasing problem with the need to support an ageing population, and the strain on the public purse that entails. The whole point of the superannuation scheme implemented during the 1980s was to enable people to be self-sufficient in retirement and not rely on government welfare. But if their superannuation is being managed by people who just aren't up to the job and deliver bad returns on their money, what hope have they got?
To me, there are three obvious areas which need to be addressed. The first is, the industry needs to start attracting good money managers. To do this, they need to lose the idea that not paying external managers or staff well is somehow going to lead to better returns for their members. I don't know about you, but honestly, every time I see that idiotic industry funds ad on the television extolling the benefits of fee-free management I want to hurl the remote control at the screen. Since when did paying less or nothing for something result in a better quality of product? Take the airlines for example. I know that if I pay a bit extra to fly Qantas I stand a chance of having a movie to watch, a glass of wine and something to eat, and I am also going to get to my intended destination roughly on time. Fly Jetstar however and I have to stare at the seat in front of me for 2 hours, get charged an eye watering amount for bringing a pair of pyjamas with me and have to pray that the plane in fact flies instead of plummeting. It is no different in the funds management business, if you are prepared to pay decent money, then you will attract good people who are diligent and know what they doing. Pay poorly and you get the sort of earnest but exceedingly dim people who work on the floors below me.
The second area is, fixing the investment process. I know from my own experience and that of other colleagues in the industry that a superannuation fund would be the absolute last resort option for taking an investment proposal to. They are just too slow and too niggardly with sharing the success of an investment with their fund managers to bother with. Many would be the time that some functionary would take an eternity to get the approval of whatever investment committee they needed to, by which time the opportunity would often be lost. In the unlikely event that it would still be available, then the superannuation fund would try and get away with offering you a fraction of the remuneration that you could get from another investor. As a result of this conduct, their investors were, and no doubt continue to be, deprived of the chance to participate in some very good investments.
The third area is imposing more scrutiny on the industry, similar to that which publicly listed companies or other managed investments schemes are under. I can go search the ASX website and find an incredible amount of detail on BHP, CSL, Macquarie Bank or any other major company, including annual reports, Q and A with the CEO, and investment proposals they make during the year. Try doing that with the likes of HESTA, REST and C+BUS and see how you go.
Of course you can always run the argument that if you aren't a member of the superannuation fund in question, then why should you be entitled to view their information? To which I would answer, as a taxpayer who is picking up the shortfall for looking after these people in retirement because you have done a bad job, then I am entitled to scrutinise you as much as I like. In fact, now that the banks have had all their dodgy practices laid bare in a Royal Commission, it's high time we had one in the superannuation industry. It would wake people up to the laziness, cronyism, crippling red tape and poor investment decisions that go on in some of the major funds. Plus it would give the people who trust these funds with managing their hard earned money a chance at redress, in much the same way that the victims of the banks are now being compensated.
The sheer volume of cash being placed into these funds now and the growing funding problem we face as a country as the baby boomers wither and die demands that this industry is run as well as it can. I don't know however when we will see some meaningful or intelligent reform. Labor has always enjoyed a fairly cosy relationship with the industry super funds so I think there will be a lack of political will from them to do much while in government. Even if they did have the will, they are likely to be delivered a Senate which is about as functional as a Boeing 737 Max operated by Jetstar, so heaven knows how any legislation will get through in the next Parliament.
Which is a pity. Hard working employees deserve a lot better, and I'd really like to be able to enjoy the lift ride up to my floor in blissful silence.
I don't know about the rest of you, but first thing in the morning I don't want to be privy to a banal discussion about whether the shop in the back of the ground floor lobby serves 50c less expensive sandwiches than the one out in Little Collins Street, or whether you should apply for a larger locker in the basement storage area so that you can fit in another set of soiled cycling gear. For heaven's sake, do us all a favour and save it for when you get to the office in 45 seconds time.
At first, I put my irritation down to the lack of consideration these people gave their fellow passengers, but then one day as I was listening to some drivel about whether the quickest way from Hughesdale to Chadstone was via Poath Road or Neerim Road I realised there was another dimension to it. I mean, these people are running one of the largest superannuation funds in the country and managing over $100 billion of employee money, and this is the sort of thing that occupies their minds? Not once in 2 years have I overheard a conversation about things like the global economy, investment markets or interest rates, all of which you would expect from a bunch of people whose job it is to manage other people's money.
However, the lack of nous doesn't surprise me at all given how this particular fund conducted itself during the Global Financial Crisis. When the biggest liquidity crisis in 75 years hit the property markets in 2008 and some of the best real estate in the country was on sale for bargain basement prices, the group was flush with cash and were perfectly poised to make a killing. Instead, it was like they were a rabbit caught in the headlights. Unable or perhaps too frightened to make investment decisions, they made precisely no acquisitions in Australia and watched the market sail by, to the complete and lasting detriment of their clients who would now be sitting on over 100 per cent capital gains in some cases.
This got me thinking more generally about what is structurally wrong with management of superannuation funds, and why that is a deep concern for all of us. Like a lot of other western countries, we are facing an increasing problem with the need to support an ageing population, and the strain on the public purse that entails. The whole point of the superannuation scheme implemented during the 1980s was to enable people to be self-sufficient in retirement and not rely on government welfare. But if their superannuation is being managed by people who just aren't up to the job and deliver bad returns on their money, what hope have they got?
To me, there are three obvious areas which need to be addressed. The first is, the industry needs to start attracting good money managers. To do this, they need to lose the idea that not paying external managers or staff well is somehow going to lead to better returns for their members. I don't know about you, but honestly, every time I see that idiotic industry funds ad on the television extolling the benefits of fee-free management I want to hurl the remote control at the screen. Since when did paying less or nothing for something result in a better quality of product? Take the airlines for example. I know that if I pay a bit extra to fly Qantas I stand a chance of having a movie to watch, a glass of wine and something to eat, and I am also going to get to my intended destination roughly on time. Fly Jetstar however and I have to stare at the seat in front of me for 2 hours, get charged an eye watering amount for bringing a pair of pyjamas with me and have to pray that the plane in fact flies instead of plummeting. It is no different in the funds management business, if you are prepared to pay decent money, then you will attract good people who are diligent and know what they doing. Pay poorly and you get the sort of earnest but exceedingly dim people who work on the floors below me.
The second area is, fixing the investment process. I know from my own experience and that of other colleagues in the industry that a superannuation fund would be the absolute last resort option for taking an investment proposal to. They are just too slow and too niggardly with sharing the success of an investment with their fund managers to bother with. Many would be the time that some functionary would take an eternity to get the approval of whatever investment committee they needed to, by which time the opportunity would often be lost. In the unlikely event that it would still be available, then the superannuation fund would try and get away with offering you a fraction of the remuneration that you could get from another investor. As a result of this conduct, their investors were, and no doubt continue to be, deprived of the chance to participate in some very good investments.
The third area is imposing more scrutiny on the industry, similar to that which publicly listed companies or other managed investments schemes are under. I can go search the ASX website and find an incredible amount of detail on BHP, CSL, Macquarie Bank or any other major company, including annual reports, Q and A with the CEO, and investment proposals they make during the year. Try doing that with the likes of HESTA, REST and C+BUS and see how you go.
Of course you can always run the argument that if you aren't a member of the superannuation fund in question, then why should you be entitled to view their information? To which I would answer, as a taxpayer who is picking up the shortfall for looking after these people in retirement because you have done a bad job, then I am entitled to scrutinise you as much as I like. In fact, now that the banks have had all their dodgy practices laid bare in a Royal Commission, it's high time we had one in the superannuation industry. It would wake people up to the laziness, cronyism, crippling red tape and poor investment decisions that go on in some of the major funds. Plus it would give the people who trust these funds with managing their hard earned money a chance at redress, in much the same way that the victims of the banks are now being compensated.
The sheer volume of cash being placed into these funds now and the growing funding problem we face as a country as the baby boomers wither and die demands that this industry is run as well as it can. I don't know however when we will see some meaningful or intelligent reform. Labor has always enjoyed a fairly cosy relationship with the industry super funds so I think there will be a lack of political will from them to do much while in government. Even if they did have the will, they are likely to be delivered a Senate which is about as functional as a Boeing 737 Max operated by Jetstar, so heaven knows how any legislation will get through in the next Parliament.
Which is a pity. Hard working employees deserve a lot better, and I'd really like to be able to enjoy the lift ride up to my floor in blissful silence.
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